Blackstone’s James Says Anti-Romney Ads Hurt Private Equity

Feb. 7 (Bloomberg) -- Tony James, president of Blackstone
Group LP, said campaigns criticizing the private equity industry
in the wake of Mitt Romney’s run for the Republican presidential
nomination will hurt fundraising and buyouts.

Romney’s opponents have attacked Bain Capital LLC and other
buyout managers as corporate looters who enrich themselves at
the expense of ordinary workers. The debate over the value of
the private equity business and its track record in creating
jobs will affect negotiations about future investments,
officials and trustees at public pensions, among the biggest
investors in private equity, have said.

“Pension funds have boards, they don’t want to be giving
money to an industry that has a taint,” James, 61, said today
in an interview on Bloomberg Television’s ‘InsideTrack’ with
Erik Schatzker. “Similarly, boards of directors don’t want to
sell their company to organizations they don’t view as
respectable. So it could be very damaging for the industry.”

The debate is affecting private equity managers as they
compete for a shrinking pool of investor dollars. Fundraising
slowed in the third quarter to the weakest pace since before the
global financial crisis and stayed near that level in the final
three months of the year, according to London-based researcher
Preqin Ltd.

Industry May Shrink

“The truth is that private equity creates jobs and is
necessary for a healthy economy,” James said. “Last year we
created 4.6 percent new jobs organically in America. By
contrast, last year the U.S. economy created 1.8 percent new
jobs.”

If private equity continues to attract negative attention,
the industry will shrink as fewer managers will have the funds
to chase deals and the clout to form special fundraising
relationships, James said. Blackstone in December won as much as
$1.8 billion in state pension money from New Jersey, though its
client won lower fees and separately managed accounts.

“Private equity is one of five or six asset classes that
are embedded in a broader relationship,” James said. “The
private equity component of that could get smaller. That
actually would not be bad for the industry because returns
should go up.”

The Private Equity Growth Capital Council, the industry’s
lobbying group in Washington, launched a website last week
promoting private equity as an “engine” that helps drive the
U.S. economy and featuring testimonials of people who say the
buyout industry has helped their businesses.

‘Turmoil Is Good’

James said he has already seen fewer competitors in Europe,
where New York-based Blackstone has sought marked-down assets in
credit and real estate. The firm did six private equity deals
and “several” real estate transactions in the region last
year.

“Turmoil is good for our business,” James said. “I think
we got compensated for that with lower prices. We have very low
leverage and we’re getting very nice cash-on-cash returns.
Europe has come alive as far as we’re concerned.”

Blackstone has secured more than $6 billion of pledged
capital for a new real estate fund that will buy mainly
distressed-property assets, two people with knowledge of the
fundraising said last month. Blackstone Real Estate Partners VII
has a total target of at least $10 billion and is expected to be
fully funded this year, the people said.

Blackstone plans to continue pursuing differentiated
investing and will avoid buying more hedge funds or entering
private banking, James said.